Rent.com was a survivor of the dot-com shakeout. With a $3 million angel funding in 1999, it built an online resource for available apartment properties. Its money-making model based on referral fees was appealing to venture capitalists, which invested $30 million. Then eBay Inc. came along with a purchase offer it couldn't refuse: $415 million in cash. That yielded an exceptional 10-fold return for the backers, achieving what many dot-com businesses couldn't.
Rent.com was generating $40 million in revenue in 2004 and was profitable. Indeed, the company planned to go public when an unsolicited acquisition offer encouraged the management team, led by co-founder Scott Ingraham, and the VCs to look at other options.
"That basically got us thinking that we should look at some of the alternatives to going public," says Klaus Koch, a partner with Los Angeles investor Kline Hawkes & Co.
The company hired UBS Investment Bank and Banc of America Securities LLC as advisers. A variety of companies, including traditional real estate companies, were interested. In the end, eBay's offer came out best because of the attractive valuation and because Rent.com executives were impressed with the online auction company, says Tim Burke, a managing director at Rosewood Capital of San Francisco.
The deal was announced initially with a $385 million stock component but was later amended in early 2005 as an all-cash transaction. Koch says eBay had asked the Rent.com shareholders if they wanted cash or stock, and the investors chose cash. The investors also got some working capital consideration, reaping about $455 million total from the sale, says one investor who declined to be named.
Among the winners were Allegis Capital of Palo Alto, Calif., Bank of America Corp. and Thomas Weisel Partners LLC. Kline Hawkes' exit, though not its best, ranked in the top 10% of the firm's returns.
Burke declined to comment on returns. However, he says Rent.com cushioned the fund from its foray into tech investments during the Internet bubble, when it admittedly strayed from its core consumer focus.